Posted by
Math Matters on Friday, February 01, 2008 2:15:10 PM
Sadly, FT (Fairtax) doesn't add up. One major reason -- a large chunk of the taxes "collected" are not collected at all.
Much of the FT is based on a rather absurd transaction -- like believing that you can pay yourself 1000 dollars to cut your own grass.
OF the 2.3 trillion that FT supposedly collects, almost 1 trillion can not possibly be collected. One trillion cant be collected because nearly 500 billion of that depends on taxing health care, and the other 500 billion depends on taxing the government.
I will explain why health care can not be taxed in the next blog.
If Fairtax -- for whatever reason - can not tax the government, nor health care, then the tax rate would have to be adjusted upward -- to about 50%.
We all know that a 50% sales tax would be a disaster.
For the government to tax itself (Neal says "the government itself would become a major taxpayer") the US Navy would have to pay 1 billion "sales tax" on each Seawolf class submarine. They would also have to pay 4 billion in sales tax for an air craft carrier.
The US Army would have to pay 12 million dollars tax for each tank. 15 million dollars tax for each Cobra helicopter.
All told, the Pentagon would have to pay the US treasury about 300-350 billion in sales taxes. State and local governments also purchase everything from cars to computers. Thats another 300 billion state and local governments would have to hand over to the federal government, in sales taxes.
But you cant really have the government paying itself a huge portion of its own expenses. Thats like paying yourself 1000 dollars to cut your grass.
You can write yourself a check for cutting your grass. You can even deposit it. But you aren't really getting 1000 dollars in a net gain.
And a net gain is what you need coming into the treasury , to add up to 2.3 trillion.
If it were possible to pay yourself to cut your grass, we would all just pay ourselves 1000 dollars a day, to cut our grass, and become millionaires very quickly.
If the government could possibly pay itself its own taxes -- it could just raise its tax rates high enough, to pay for itself totally.
Thats just one major fallacy of the Fairtax. There are others - that I will explain. But this one by itself means the Fairtax is fatally flawed. If there were nothing else wrong with Fair tax but this one thing -- it still wouldn't work.
We need a way to fix our tax system. I think we should just have essentially a flat tax, with two or three rates. But the tax would be the same on all income - wages, self employed income, business profits, stock profits, dividends, inheritance, everything.
Let the market work, don't have one type of income heavily subsidized by the others. Just apply the same tax to all types of income, let the market work.